Tracking Your Personal Finances with the Envelope-Cash Method

Monitoring spending habits by using the envelope-cash method is a smart and easy way to manage your personal finances.  According to a survey conducted by the National Retail Federation, one fourth of US shoppers reported they would use cash this November and December.  That is a 9% increase from the same time one year ago.  Using the envelope cash method helps consumers track their spending, make sometimes difficult spending choices, avoid credit card debt, and live within or below their means.

How Much Are You Really Spending?
The envelope-cash method requires you to get a realistic picture of your personal finance situation. This method works best for day to day spending such as food, gas, and clothing.  Start by determining how much money you spend each month.  Take an estimate of how much you spend on groceries, entertainment, household supplies (toilet paper, batteries ECT…), pet food, work or school expenses such as dry cleaning or school field trips.  You might want to have a miscellaneous category in case something totally unexpected comes up.  If you want to know the exact amount, take a month to write everything down that you spend. You may need to look ahead to estimate upcoming events.  Figure out what works best for your personal finance situation.

Divvy Up the Cash
Once you have figured out how much a typical month costs including the unknowable and unexpected, purchase some paper envelopes and a plastic envelope holder.  These are easily found at a discount or office supply store.  Date and label the envelopes by week and category. Put the appropriate amount of cash inside each envelope.  Put each envelope in the plastic envelope holder and don’t touch it until you need it for a particular purchase.  When it is time to use the money for a purchase, take it out and spend it…wisely.  When it’s gone, it’s gone.  This helps get a sober view of where the money is going, how fast it’s leaving, and what you can do without.

Spend Less with Cash Only
There are several benefits to using the cash-envelope method for personal finances. Many consumers who use credit cards end up spending more than they would have if they had used cash.  A study of consumers using credit cards at McDonalds’ fast food restaurants found people spent 47% more when using their credit cards.  The danger of using this cash only method is that if you lose your money or it is stolen, it cannot be replaced.   So when working on your personal finances, try the envelope cash method, but keep an eye on the dollars so you don’t lose everything you have gained.